IAG again expands cat coverage by A$1bn at ‘flat’ renewal rates

Insurance Australia Group (IAG), which buys one of the biggest catastrophe reinsurance programmes in the world, has again increased the size of its programme to buy some A$9 billion ($6.3 billion) of coverage for 2019 - A$1 billion more than the year before.

The insurer said the rates on the placement were broadly flat. Shares in the insurer initially increased by some 1.5 percent in the aftermath of the announcement, which the company said reflects anticipated higher underlying aggregate exposures.

Consistent with 2018, the programme has been placed to the extent of 67.5 percent to reflect the cumulative whole-of-account quota share position of 32.5 percent. This comprises a 20 percent quota share agreement with Berkshire Hathaway, which commenced 1 July 2015, and a combined 12.5 percent quota share agreements with Munich Re, Swiss Re and Hannover Re, which came into force from 1 January 2018.

IAG’s integrated catastrophe reinsurance program for calendar 2019 comprises two main components.

A main catastrophe cover is for losses up to $9 billion, including one prepaid reinstatement. IAG retains the first $250 million of each loss ($169 million post-quota share), with three prepaid reinstatements secured for the lower layer of the main program ($169 million excess of $169 million post-quota share).

The second part is an aggregate sideways cover, which reduces the cost of a second event to $175 million ($118 million post-quota share) and a subsequent event to $25 million ($17 million post-quota share). The aggregate provides protection of $475 million excess of $375 million ($321 million excess of $253 million post-quota share), with qualifying events capped at a maximum contribution of $225 million excess of $25 million per event ($152 million excess of $17 million post-quota share).

IAG said it has increased the limit of its main catastrophe cover to $9 billion to provide additional protection above modelled exposure. Compared to calendar 2018, underlying aggregate exposure is expected to show a modest increase in Australia and growth of approximately 5 percent in New Zealand.

The combination of all catastrophe covers in place at 1 January 2019 results in post-quota share first event retentions of $169 million for Australia and NZ$169 million for New Zealand.

IAG said it experienced relatively flat reinsurance rates during the renewal process, with the overall expense outcome in line with the associated assumption in its FY19 reported margin guidance.

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